United States: What You Need to Know About The Uniform Voidable Transactions Act

Last Updated: September 23 2015
Article by   Orrick

Last year, the National Conference of Commissioners on Uniform State Laws ("NCCUSL") rolled out one of its latest projects, the Uniform Voidable Transactions Act ("UVTA").1 According to NCCUSL's website,2 the model statute has already been enacted in eight states, including California (where it takes effect on January 1, 2016), and has been introduced in four others, including Massachusetts.

The first thing to know about the UVTA is that it is the Uniform Fraudulent Transfer Act ("UFTA")3 with a new name and the legal equivalent of a fresh coat of paint. In a lengthy article about the drafting of the model statute4, the reporter for the NCCUSL drafting committee, Professor Kenneth C. Kettering, describes the model statute as "the UFTA, renamed and lightly amended." As light as the amendments may be, however, Kettering notes that they are "significant enough to warrant attention"5—significant enough, at least, to justify his publishing a 57-page law review article on the subject. The extensive "Official Comments" that were promulgated by NCCUSL along with the model statute also provide some insight into the thinking of the drafters, but Professor Kettering's article is far more forthcoming about the reasoning behind the proposed statutory changes. Anyone who wants the full story should, therefore, consult Professor Kettering's article. We will try here instead simply to describe the most significant provisions in the new or, at least, improved model statute.

New Nomenclature

Throughout the model statute, not just in the name, the term "fraudulent transfer" is replaced with the term "voidable transaction." The drafters felt that the continued use of the word "fraudulent" in connection with the statute was misleading since the kinds of transactions that are commonly described as involving "constructive fraud" (those in which an insolvent debtor makes a transfer or incurs an obligation for less than reasonably equivalent value) do not involve any kind of fraud and even transactions described as being "actual fraudulent transfers" (those made "with intent to hinder, delay or defraud" creditors) do not necessarily involve fraudulent intent.

This mislabeling has had some real consequences. On occasion, for example, courts mistakenly applied the heightened pleading requirement for "fraud" to complaints alleging the existence of a fraudulent transfer or have required the plaintiff to prove its case by a stricter standard of proof than would ordinarily apply in civil actions. To try to prevent such errors, the drafters effectively eliminated the words "fraud" and "fraudulent" from the statute.

New Choice of Law Rule

Courts have almost literally been all over the map in their attempts to discern which jurisdiction's law to apply under the UFTA. According to Professor Kettering, "[i]nability to predict which jurisdiction's voidable transfer law will apply" adds to the transaction costs and, if the matter ever goes to court, the litigation costs. 6

Accordingly, in its Section 10, the UVTA sets forth a choice of law rule to be applied in all cases under the statute. It instructs that a voidable transaction claim is governed by the law of the jurisdiction in which the debtor is "located" when the challenged transfer was made or the challenged obligation incurred. For this purpose, a debtor that is an individual is "located" at the individual's principal residence, and a debtor that is an organization is "located" at it place of business if it has only one and, if it has more than one place of business, at its chief executive office.

This rule, while helpful, will not dispose of all potential disputes about the debtor's location. (Similar rules relating to the location of the debtor under Article 9 of the Uniform Commercial Code have, over the years, engendered considerable litigation.) Still, it narrows the area of potential dispute if the parties get into litigation and gives transactional lawyers considerable guidance, if not always a definitive answer to choice of law issues.

The chief import of this choice of law rule is that, when the UVTA applies, those who transact business with a debtor need to be prepared to analyze the potential voidability of the transaction under the laws of the jurisdiction where the debtor is located—not, for example, the jurisdiction where the property transferred is located.

Another import of this choice of law rule is that in a jurisdiction that has adopted the UVTA the courts will look to the avoidance law of the debtor's location whether that happens to be another state or even another country. According to Professor Kettering, that is the case even if the law of the debtor's location has "debased" or effectively eliminated its avoidance laws in order to promote "asset protection trusts" or "asset tourism"7

New Variations on Definition of Insolvency

Whether or not the transferor was "insolvent" at the time of the transfer is not an essential element in cases where the transfer is made with "intent to hinder, delay or defraud" creditors, but many, perhaps most cases, under the fraudulent transfer law have not involved allegations of intent to hinder, delay or defraud. Instead those cases turn on a combination of two factors: one, absence of reasonably equivalent value (or, in older parlance, fair consideration) and, two, some form of insolvency.

The definition of "insolvency" has always, therefore, been one of the cornerstones of fraudulent transfer law. Not surprisingly, the UVTA leaves the UFTA's definition of "insolvency" largely intact, but it does tweak it in a number of ways.

First, in Section 2(a), the definition is reworded to make it clear that, if the case for insolvency turns on the debtor's having more liabilities than assets, both the liabilities and the assets must be subject to "fair valuation." According to the Official Comments to Section 2, "[n]o change in meaning is intended."

Second, in Section 2(b), the UVTA changes the wording of the provision that deals with insolvency based on the failure to pay debts as they come due. In the UFTA, insolvency is rebuttably presumed based upon such failure. The UVTA makes clear that, for purposes of applying this presumption, a court should disregard debts that are subject to a bona fide dispute. According to the Official Comments to Section 2, "[t]hat was the intended meaning of the language" in the prior model statute. (The presumption, it is worth noting, imposes on the defendant the burden of proving that the nonexistence of insolvency is more probable than its existence.)

Finally, and most substantively, while both the UFTA and the Bankruptcy Code contain special definitions for "insolvent" in the case of partnerships, the UVTA eliminates that special treatment and subjects partnerships to same test of insolvency as other debtors. (For the determination of insolvency, the UFTA and the Bankruptcy Code add to the value of the partnership assets the aggregate net worth of the partnership's general partners; the UVTA does not.)

New Allocation of Burden of Proof

The UFTA says nothing about which party must carry the burden of proof in fraudulent transfer cases or what standard of proof a court is supposed to require. The UVTA fills in the gaps on these issues.

With regard to the burden of proof, Section 8(g) of the UVTA allocates to the plaintiff creditor the burden of proof on the following issues:

  • With respect to Section 8(b):
    • Proof of the value of the asset transferred or of the amount of the creditor's claim, whichever is less.
    • Proof that the defendant was the first transferee (the "Initial Transferee") or the person for whose benefit the transfer was made or was an immediate or mediate transferee of the Initial Transferee (a "Subsequent Transferee").
  • With respect to Section 8(c), if the judgment is based on the value of the asset transferred, proof of the value of the asset as of the time of the transfer (subject to adjustment as the equities might require).

With regard to the burden of proof, Section 8(g) of the UVTA allocates to the defendant transferee (or, where applicable, obligee) the burden of proof on the following issues:

  • With respect to Section 8(a), proof that the Initial Transferee (or obligee) took in good faith and for a reasonably equivalent value given to the debtor. (Note: the qualification that the value be given specifically "to the debtor" is added by the UVTA.)
  • With respect to Section 8(b)(ii)(A) or (B), if the defendant was a Subsequent Transferee, proof that such Subsequent Transferee was either a good faith transferee who took for value (a "Good Faith Subsequent Transferee") or an immediate or mediate transferee of a Good Faith Subsequent Transferee.
  • With respect to section 8(d), proof that the transferee (or obligee) is a "good faith transferee or obligee" entitled, to the extent of the value given the debtor, to (1) a lien or a right to retain an interest in the asset transferred, (2) enforcement of an obligation incurred, or (3) a reduction in the amount of liability on the judgment.
  • With respect to Section 8(e), proof that a transfer that is allegedly voidable as what we used to call a "constructively fraudulent transfer" or as a voidable insider transfer is, in fact, not voidable because it results from (1) certain types of lease termination or (2) enforcement of security interest under Article 9 (other than by way of acceptance of all or part of the collateral).
  • With respect to 8(f), proof that a transfer to an insider that would otherwise be voidable is rendered not voidable because (1) the insider gave new value to the debtor after receiving the transfer (and only not voidable to the extent of such new value), (2) the transfer was made in the ordinary course of business or financial affairs of the debtor and of the insider, or (3) the transfer was made "pursuant to a good-faith effort to rehabilitate the debtor and the transfer secured present value given for that purpose as well as an antecedent debt of the debtor."

New Statutory Standard of Proof

Section 8(h) establishes that the "standard of proof required to establish matters referred to in this section s preponderance of the evidence." This is intended to override judicial decisions that have applied a stricter evidentiary standard to cases involving "actual fraud" or even, in a few cases, "constructive fraud."

New Provisions Regarding Series Organizations

Arguably, the greatest innovation in the UVTA is Section 11, which deals with a relatively new type of business known as a "series organization." A series organization is an entity whose organizational documents authorize it to create special obligations that can be satisfied only out of certain assets of the entity and whose other obligations cannot be satisfied out of those protected assets. According to Professor Kettering, twelve states, the District of Columbia and Puerto Rico have enacted statutes that permit the creation of a series organization (although not all such statutes employ the term "series organization"), and most of those apply to limited liability companies or LLCs, but, in theory, any type of business organization could be a series organization.8

Under the current state of the law, it is not clear whether a protected series created by a series organization is to be treated as a separate legal entity (analogous to a corporate subsidiary) or is to be treated as part of the organization as a whole (analogous to a corporate division).9 This creates some interesting issues in the context of a fraudulent transfer or voidable transactions statute. As Professor Kettering has noted, if "a series is not a legal person, then no disposition of the property allocated to it to another series or to the 'mother ship' can possibly be a voidable transfer under the UFTA."10

To address these issues, the UVTA specifies, in Section 11(b), that a "series organization and each protected series of the organization is a separate person for purposes of this [Act], even if for other purposes a protected series is not a person separate from the organization or other protected series of the organization."

NCCUSL notes that this provision should be enacted even in states that do not authorize the creation of protected series on the ground that, under choice of law rules, a court may have to apply the law of another jurisdiction that does enable the creation of protected series.

A Note on California and Uniformity

It is significant that California, the nation's largest state, has enacted the UVTA.11 The statute goes into effect, in place of the UFTA, on January 1, 2016, as Sections 3439 et. seq. of the California Civil Code.

It is, however, equally significant that California did not enact the UVTA in its entirety. It did not, for example, adopt Section 11 regarding series organizations, nor did it enact the UVTA's "insider preference" avoidance provisions that were carried over, virtually verbatim, from the UFTA (California did not adopt those UFTA provisions, either)12, and it retained certain non-uniform provisions that had been previously been inserted into California's version of the UFTA.13

Still, California did enact the UVTA's choice of law rules in new Cal. Civil Code section 3439.10, as a result of which, depending on the jurisdiction in which the debtor is deemed located, California courts and California creditors may find themselves looking to the laws of a jurisdiction like Delaware (that still has the UFTA but also authorizes the creation of protected series) or New York (that still employs the pre-UFTA model statute, the Uniform Fraudulent Conveyance Act, promulgated in 1918). In that regard, whether the Uniform Voidable Transactions Act actually turns out to be a step toward further uniformity remains an open question.


[1] http://www.uniformlaws.org/shared/docs/Fraudulent%20Transfer/2014_AUVTA_Final%20Act.pdf

[2] http://www.uniformlaws.org/Act.aspx?title=Voidable Transactions Act Amendments (2014) – Formerly Fraudulent Transfer Act

[3] http://www.uniformlaws.org/Act.aspx?title=Fraudulent Transfer Act – now known as Voidable Transactions Act

[4] Kettering, "The Uniform Voidable Transactions Act; or, the 2014 Amendments to the Uniform Fraudulent Transfer Act," 70 Bus. Law. 777 (2015) (hereinafter, cited as "Kettering").

[5] Kettering at 779.

[6i]Kettering at 795.

[7] Kettering at 801.

[8] Kettering at 828-829.

[9] Routledge, "Again, For the Want of a Theory: The Challenge of the 'Series' to Business Organization Law," 46 Am. Bus. L.J. 311 (2009).

[10] Kettering at 830.

[11] Cal. SB No. 161, filed with the California Secretary of State on July 2, 2015.

[12] Compare UFTA Section 5(b) and UVTA Section 5(b) with Cal Civil Code Section 3439.05.

[13] Compare, for example, UVTA Section 7 (Remedies of Creditor) with Section 3439.07 of the California Civil Code (both in its current UFTA-inspired version and in its future UVTA-inspired version).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
26 Sep 2018, Seminar, Tokyo, Japan

Orrick’s Global Japan Practice is hosting a series of “Orrick Library” seminars to explore legal issues in various fields in Japan as well as the United States, Asia and Europe

26 Sep 2018, Conference, New York, United States

Employment Partner, Mandy Perry and Chair of Orrick's Global Employment Law Practice, Mike Delikat will be participating in the Global Business Protections 2018: International Restrictive Covenants and Confidential Information Conference.

10 Oct 2018, Conference, Florida, United States
Julie Totten is Program Chair of this year’s conference, Lynne Hermle is speaking on women in the courtroom, boardroom, and c-suite, and Erin Connell is speaking on pay equity and pay transparency.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions